Recursive expected utility and the separation of attitudes towards risk and ambiguity: an experimental study

We use the multiple price list method and a recursive expected utility theory of smooth ambiguity to separate out attitude towards risk from that towards ambiguity. Based on this separation, we investigate if there are differences in agent behaviour under uncertainty over gain amounts vis-a-vis unce...

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Vydáno v:Theory and decision Ročník 66; číslo 3; s. 199 - 228
Hlavní autoři: Chakravarty, Sujoy, Roy, Jaideep
Médium: Journal Article
Jazyk:angličtina
Vydáno: Boston Springer US 01.03.2009
Springer
Springer Nature B.V
Témata:
Agency
Ambiguity
Applied sciences
Attitudes
Behavioral/Experimental Economics
Decision theory
Decision theory. Utility theory
Design
Economic behaviour
Economic Theory/Quantitative Economics/Mathematical Methods
Economics
Economics and Finance
Exact sciences and technology
Expected utility
Experiments
Finance
Game Theory
Insurance
Management
Mathematical analysis
Operational research and scientific management
Operational research. Management science
Operations Research/Decision Theory
Probability
Probability distribution
Prospects
Recursion
Recursive algorithms
Reflection
Risk
Risk theory. Actuarial science
Social and Behav. Sciences
Social sciences
Statistics for Business
Studies
Uncertainty
Utility theory
Recursive expected utility
Risk
C44
C91
C9
Ambiguity
Correlation
Attitude
Risk analysis
Risk aversion
Uncertain system
Utility theory
Risk factor
Recursive method
Aggregate
Expected utility
ISSN:0040-5833, 1573-7187
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Shrnutí:We use the multiple price list method and a recursive expected utility theory of smooth ambiguity to separate out attitude towards risk from that towards ambiguity. Based on this separation, we investigate if there are differences in agent behaviour under uncertainty over gain amounts vis-a-vis uncertainty over loss amounts. On an aggregate level, we find that (i) subjects are risk averse over gains and risk seeking over losses, displaying a “reflection effect” and (ii) they are ambiguity neutral over gains and are mildly ambiguity seeking over losses. Further analysis shows that on an individual level, and with respect to both risky and ambiguous prospects, there is limited incidence of a reflection effect where subjects are risk/ambiguity averse (seeking) in gains and seeking (averse) in losses, though this incidence is higher for ambiguous prospects. A very high proportion of such cases of reflection exhibit risk (ambiguity) aversion in gains and risk (ambiguity) seeking in losses, with the reverse effect being significantly present in the case of risk but almost absent in case of ambiguity. Our results suggest that reflection across gains and losses is not a stable individual characteristic, but depends upon whether the form of uncertainty is precise or ambiguous, since we rarely find an individual who exhibits reflection in both risky and ambiguous prospects. We also find that correlations between attitudes towards risk and ambiguity were domain dependent.
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ISSN:0040-5833
1573-7187
DOI:10.1007/s11238-008-9112-4